Closed-end Lease

Definition

• The most common type of car lease. The lessee may return the car at the end of the lease term, pay any end-of-lease costs, such as the disposition fee, and the lease agreement is over. In a closed-end lease, the lender assumes the risk of predicting the value of the vehicle (its residual value) at the end of the lease's term. Closed-end lease payments are somewhat higher than open-end lease payments.
• It allows a person the use of property for a fixed term and then once the term expires, they can either walk-away or purchase it at the residual value.

Synonyms
limited lease, lease contract, walk-away lease

Related Terms and Acronyms

• Disposition Fee — Definition,
  • A fee charged by some lessors at the end of a lease where the customer pays for the privilege of returning the vehicle.
• Excess Wear Charge — Definition,
  • Most leases set limits for wear and tear on the car during the lease term. The lessee must pay charges for exceeding the limits when turning in the car at the end of the lease.
• Lease (lse) — Abbreviation,
  • A written agreement in which the property owner allows a tenant to use property in exchange for rent, and for a specified period. Or, a written agreement in which a car dealer allows a consumer to use a vehicle in exchange for payments for a specified period.
• Mileage Allowance — Definition,
  • The number of miles, specified in a lease, that a car may be driven over the life of the lease.
• Money Factor — Definition,
  • A leasing term that expresses the cost of borrowing. It is similar to the interest rate paid on a conventional car loan, but it is expressed as a difficult-to-understand fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 x 24 = 9 percent interest. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans.
• Negative-equity Financing — Definition,
  • Financing for new car buyers who owe more on their trade-in than the car is worth.
• Option — Definition,
  • A legal agreement giving someone the right to buy, sell or lease a property or item at specified terms for a specified period.
• Options — Definition,
  • Also known as add-ons. These are features added to the car often by the dealer such as a CD stereo, anti-theft system, detailing and undercoating. Some items are purely decorative, known as "mop and glow," and do not add any value to the car.
• Purchase Option — Definition,
  • An agreement where a portion of monthly rent can be credited toward the purchase of a property.
  • The portion of a vehicle lease that determines how much a lessee pays the lessor at the end of the lease to buy the vehicle. The price is usually the residual value.
• Rebate — Definition,
  • A manufacturer's reduction on the price of a car as an incentive to buyers. Rebates appeal to people with no credit or less-than-perfect credit who cannot qualify for the lowest-rate loan. A rebate may also appeal to first-time buyers who don't have a lot of cash for a down payment or another car to trade in.
• Service Contract — Definition,
  • Also known as extended warranty. A contract that covers certain car repairs or problems after the manufacturer's or dealer's warranty expires. Extended warranties are sold by car manufacturers, dealers and independent companies. With a new car, the extended warranty usually must be purchased by the end of the first year of ownership.
• Step Down Lease — Definition,
  • A lease providing for decreases in rental payment at specified dates.
• Step Up Lease — Definition,
  • A lease providing for increases in rental payment at specified dates.
• Walk-away Lease — Definition,
  • The most common type of car lease, also known as a closed-end lease. The lessee may return the car at the end of the lease term, pay any end-of-lease costs, such as the disposition fee, and the lease agreement is over. In a closed-end lease, the lender assumes the risk of predicting the value of the vehicle (its residual value) at the end of the lease's term. Closed-end lease payments are somewhat higher than open-end lease payments.